(Bloomberg) — Mackenzie Investments, one of Canada’s top fund managers, is becoming less bullish on stocks and seeing better value in bonds after global equities rose 13% in the first half.
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Leslie Marks, chief investment officer for equity at McKinsey, said in an interview that campaigns by central bankers to increase borrowing costs are beginning to have an impact on the economy and will eventually force investors to become more defensive. There is a 60% chance of a recession in the United States within the next 12 months, according to economists in a recent Bloomberg survey.
“We think that as the data continues to come out through the remainder of the year, people will see that the economy actually slows,” she said, limiting corporate earnings. “The relative value is now in fixed income.”
Company strategists recommend adding investment-grade debt and decreasing equity.
McKinsey’s view reflects growing concern among global managers that the rise in equity standards is out of sync with economic reality. While the boom in artificial intelligence boosted gains in stocks of global technology companies, masking weakness in other sectors, the central bank’s hawkish rhetoric dampened optimism about the economic soft landing.
Pacific Investment Management is among those companies that warn of the possibility of a recession in some developed markets due to high policy rates, which make high-quality government and corporate bonds attractive.
Mackenzie, a unit of IGM Financial Inc. , 190 billion Canadian dollars ($143 billion) under management, including balanced portfolios. The Mackenzie Ivy Global Balanced fund raised its fixed-income allocation to more than 24% by the end of May, from 21% at the end of last year, as stocks trimmed. The vast majority of its bond holdings are investment grade.
Any recession is likely to be moderate, Marks said, but that “a slowdown in the economy will play a stronger role in the equity outlook” in the second half of 2023.
Read more: Bond’s stunning move puts 4% return into play to win investors over
Within stocks, investors should favor sectors that are less volatile and will perform better in a tougher economy, such as health care and consumer goods stocks, Marks said. She also likes Japanese stocks, whose benchmarks are trading near the highest levels in more than three decades.
“It’s been a market that’s been ignored for far too long outside of this year,” she said. Marks added that the Bank of Japan may yet have to adjust its policy to control the yield curve, which would strengthen the yen, in favor of foreign owners of Japanese stocks. Mackenzie Holdings listed in Tokyo include medical equipment maker Terumo Corp., retailer Seven & I Holdings Co. , according to fund disclosures dated May 31.
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